May a Non-Signatory to an Arbitration Agreement Enforce the Arbitration Agreement?
On June 25, 2019, the Colorado Supreme Court addressed the circumstances under which a party who did not sign an arbitration agreement may enforce arbitration against a signatory to the agreement.
In Santich, et al. v. VCG Holding, a group of exotic dancers sued the corporations that owned the clubs where they performed and the corporate parents of those corporations, alleging that they had been wrongfully misclassified as independent contractors, denied minimum wage, overtime and gratuities, and subjected to onerous fines. The club-owner defendants successfully compelled arbitration of the dancers’ claims based on the arbitration clause included in the agreements the dancers signed with the club owners. The corporate-parent defendants sought to do the same, but because they were not parties to the agreements or to any other written contract with the dancers, they had to find a different way to compel the dancers into arbitration.
The corporate-parent defendants argued that the dancers should be “equitably estopped” from litigating their claims against the corporate parents in court because the dancers are compelled to arbitrate the same claims against the club owners. In making this argument the corporate-parent defendants sought to deviate from how the doctrine of equitable estoppel is traditionally applied in a case.
The Supreme Court in Santich disagreed with the corporate-parent defendants, holding that Colorado’s law of equitable estoppel applies in the same manner when a dispute involves an arbitration agreement as it does in all other contexts. Equitable estoppel is generally understood as arising “where one party induces another to detrimentally change position in reasonable reliance on that party’s actions through words, conduct, or silence.” Under Colorado case law, estoppel may not be applied as a bar absent a clear showing of four (4) elements, as follows: “[T]he party against whom the estoppel is asserted must know the [relevant] facts; that party must also intend that its conduct be acted upon or must lead the other party to believe that its conduct is so intended; the party claiming estoppel must be ignorant of the true facts; and the party asserting the estoppel must detrimentally rely on the other party’s conduct.”
The Supreme Court in Santich found no reason to depart from the traditionally defined elements of equitable estoppel to craft an arbitration-specific rule. Thus, the Court held that non-signatories to a contract containing an arbitration provision might be able to compel arbitration on equitable estoppel grounds, but to do so they must prove all four traditionally defined elements of the doctrine, including but not limited to, the element of detrimental reliance.